Beaufort Securities Breakfast Alert: Sainsbury, Smiths Group, Venn Life Sciences
Date
9/29/2016 5:55:34 AM
(MENAFN- ProactiveInvestors - UK) Beaufort Securities, 08:42
Markets
Europe
The FTSE-100 finished yesterday's session 0.61% higher at 6,849.38, whilst the FTSE AIM All-Share index closed 0.33% better-off at 817.92. In continental Europe, markets ended in the positive territory, as gains in shares of Deutsche Bank led to a rally in banking stocks. In addition, an improvement in oil prices lifted investor sentiment. France's CAC 40 and Germany's DAX rose 0.8% and 0.7%, respectively.
Wall Street
Wall Street ended in the green, as oil prices increased after reports stated that OPEC members had reached a deal to cut production. The S & P 500 advanced 0.5%, with the energy sector gaining the most.
Asia
Equities are trading higher, driven by gains in energy stocks after OPEC members agreed to curb production. The Nikkei 225 rose 1.4%, as a weaker yen boosted export-driven stocks. The Hang Seng was trading 0.1% up at 7:00 am.
Oil
Yesterday, Brent oil prices increased 5.9% to US$48.69 per barrel, while WTI prices rose 5.3% to US$47.05 per barrel.
Headlines
Britain and Eurozone to face slower growth: S & P
Ratings agency Standard & Poor's (S & P) said that Britain and the Eurozone would avert a recession, but witness slower economic growth after Brexit. S & P expects Britain to grow at 1.8% in 2016, and slow to 1.0% in 2017 and 1.1% in 2018. Furthermore, it stated that exports and the housing market would impact the economy's long-term response to the Brexit vote.
Company news
Sainsbury (LON:SBRY, 241.0p) - Hold
Sainsbury released a trading update for the 16 weeks to 24th September 2016 (Q2 FY 2017). Retail sales (excluding fuel) fell 0.4% in Q2 FY 2017 and dropped 1.1% on a like-for-like (LFL) basis. Retail sales (excluding fuel) for H1 FY 2017 declined 0.1%, while LFL sales dropped 1.0%. Retail sales (including fuel) remained unchanged for Q2 FY 2017 and fell 0.5% on an LFL basis. Retail sales (including fuel) for H1 FY 2017 remained same, while LFL sales dropped 0.7%. The company completed the acquisition of Home Retail Group on 2nd September 2016. In the 13 weeks to 27th August 2016, Argos's total sales grew 3.0% and LFL sales grew 2.3%. Groceries online delivered 8.0% sales growth and nearly 12.0% growth in customer orders. Sainsbury completed the sale of its pharmacy business to Lloyds Pharmacy. The company plans to open 200 digital collection points in its stores by the end of the year.
Our view: Sainsbury performed poorly in Q2 FY 2017 amid increased competition from discount rivals. The company recorded the second consecutive quarter of drop in sales mainly due to falling food prices. Sainsbury cut prices on its everyday prices to cope up with the competition. The company cut the prices of broccoli, onions, Margherita pizza and its own-brand nappies in Q2 FY 2017. Sainsbury took initiatives to improve the quality and range of its food, clothing and general merchandise products. The company's newly acquired Argos performed well, recording higher sales and LFL sales growth. The outlook for Sainsbury looks gloomy considering the challenging market place and slowdown in the UK economy. In light of the ongoing problems faced by the company, we maintain a Hold rating on the stock.
Smiths Group (LON:SMIN, 1,443.0p) - Hold
Smiths Group declared its results for the year ended 31st July 2016 (FY 2016). Revenue increased 2% y-o-y to £2.9bn, and operating profit remained broadly unchanged at £510m. Pre-tax profit dropped 2% to £451m, leading to an EPS of 85.2p, 1% lower than FY 2015. Revenue from the company's John Crane business fell 8% to £830m, while its headline operating profit dropped 19% to £181m. Revenue from Smiths' Medical division increased 5% to £874m, and headline operating profit rose 13% to £187m. Headline free cash flow for the group increased 18% to £400m. Return on capital employed stood at 15.3% vis-à-vis 16.0% in FY 2015. Smiths completed the purchase of XPD8, a conditioning monitoring business in John Crane, for £8m. In April 2016, the group announced the acquisition of Morpho Detection for US$710m. The transaction is expected to complete in 2017, subject to regulatory clearances, after which Morpho Detection will be merged with Smiths Detection. In September 2016, Smiths announced the disposal of its artificial lift business in John Crane for US$39.5m. This transaction is expected to complete in 2017. The group's board proposed a final dividend of 28.75p, 2.4% higher than FY 2015, to be paid on 18th November 2016.
Our view: Smiths recorded an average performance during FY 2016, with mixed performance across divisions. The group's John Crave division continued to face pressure amid a slowdown in the energy sector due to weak commodity prices. On the other hand, Smiths' Medical and Detection divisions reported higher revenues and margins. Performance of the smaller divisions Interconnect and Flek-Tek was slightly higher than that recorded last year. The group continued its focus on disposing of non-core assets as well as looked for acquisitions to strengthen its portfolio. Smiths also undertook a lot of initiatives across segments to bring in operational efficiencies and reduce costs. Nonetheless, the outlook for the energy markets looks gloomy and the group's exposure to it cannot be overlooked. In addition, the performance of other divisions is not remarkable and demands a lot of improvement. In view of the uncertainty over the company's performance, we would like to adopt a wait and watch approach and therefore maintain a Hold rating on the stock.
Venn Life Sciences (LON:VENN, 25.25p) - Speculative Buy
Venn Life Sciences (Venn) declared its unaudited interim results for the six months ended 30th June 2016 (H1 2016). Revenue increased to €9.06m in H1 2016 from €4.25m in H1 2015. EBITDA profit was €0.40m in H1 2016 vis-à-vis €0.09m in H1 2015. Operating loss stood at €0.033m compared to a loss of €0.079m in H1 2015. Cash and cash equivalents stood at €1.75m as at 30th June 2016, compared to €1.10m as at 30th June 2015. Cash and cash equivalents amounted to €2.10m as of 23rd September 2016. On the operational front, Venn made progress on Kinesis integration and continued progress on systems infrastructure with improvements in operating margins. Post H1 2016 the Company appointed Allan Wood as non-Executive Chairman and Mary Sheahan as non-Executive Director. The Company entered into an arrangement to sell its innovation division, Innovenn.
Our view: Venn has started FY 2016 on a strong note. The Company made good progress on both operational and financial fronts. Venn reported a sharp jump in revenue and improved EBITDA for H1 2016. Strong Cash reserves should help the Company deliver on its growth plans. Venn made progress on the integration of Kinesis and achieved initial cross sales. The Company expects to benefit from the acquisition of Kinesis in H2 2016. Venn extended its operating capabilities into the USA with the establishment of Venn Inc and the appointment of a VP of Operations USA. The Company has a solid line of opportunities for H2 2016 and remains fundamentally strong. Therefore, we retain a Speculative Buy rating on the stock.
Economic news
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, dropped 0.7% in the week ended 23rd September, after a 7.3% drop in the preceding week, the Mortgage Bankers Association said yesterday.
US durable goods orders
US durable goods orders remained unchanged in August, after a revised 3.6% increase in July, as per preliminary data published by the US Commerce Department yesterday. The markets expected a 1.5% fall in orders.
Beaufort Securities